Investment Policy Review Staffing & Finance Committee Report 27.01.2021 - Item 8
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Investment Policy Review
Staffing & Finance Committee Report
27.01.2021 – Item 8
1. Background
The council receives c£775,000 Precept income in equal instalments in April
and September. Following the receipt this September, cash balances were
c£800,000 the majority of which have been placed on deposit with Lloyds
Bank pending a review of investment options and policy.
Due to current economic circumstances bank interest rates are very low. For
example, the best instant access rate available from Lloyds Bank is 0.01%
and the highest 95-day notice rate is £0.10%. With other high street banks
such as Santander and HSBC offer deposit rates of between 0.01% and
0.05%.
Many bank deposit accounts also do not accept investments from local
authorities and local authorities with budgets in excess of €500,000 are not
covered by the Financial Services Compensation Scheme (www.fscs.org.uk)
for losses on bank and other deposits.
The council Investment Policy prioritises Security, Liquidity and Yield in that
order which are still considered the appropriate goals. Within those
parameters obtaining significant yields in current circumstances in constrained
and investigating individual bank deposits is time consuming.
2. Cash Deposit Profile
Average council net expenditure is c£60,000 per month and cash balances
over the next 12 months are estimated to be between £800,000 and £400,000
at different points in the year:
Estimate
December 2020 £700,000
March 2021 £450,000
April 2021 £800,000
August 2021 £560,000
September 2021 £800,000
March 2022 £400,000
• There is a need to maintain immediate liquidity as the timing of
significant project and capital costs are difficult to predict and so it is
recommended that at least 3 months’ worth of free cash, £180,000, is
kept instantly accessible. With a balance of one month’s cash being
held with the current account provider, Lloyds Bank.
• A core cash balance of say £300,000 could be invested longer term, at
6- and 12-month maturities, a split of 6- and 12-month terns will ensue
these funds are available at 6 monthly intervals.
1• Other cash balances (estimated to be between £0 and £320,000 during
the year) may be deposited on 30 and 90 day notice, so that they are
more immediately available to replenish liquidity.
Accordingly, a proposed investment strategy is:
• Instant or easily accessible funds, of around 3 months net expenditure
of £180,000 (of which £120,000 kept with Lloyds Bank/Money Market
Fund)
• Longer term 6 and12 month term deposits, around 5 months net
expenditure, of £300,000
• Balance of funds in 30/90 day notice deposits, to the extent these
obtain a higher yield than instant access deposits
The objective is to maximising yield, subject to ensuring Investment Policy
Security and Liquidity is maintained with investment only with UK high credit
quality (A rated or above) institutions or funds.
3. Investment Options
As noted above interest rates are currently low and a representative selection of
current bank deposit rates is attached, ranging from 0.01% to 0.75%. PTC as a
council may not be able to access all the products/rates listed.
An alternative, to managing investments directly with individual banks is to invest
in a Money Market Fund (MMF) or via an investment platform that offers deposits
with several providers. A MMF offers the benefit of diversification as it invests in a
pool of banks/funds, whereas an investment platform provides choice, but
investment risk remains in the specific bank/investment. A MMF also more
immediately tracks market interest rates, beneficial should rates rise as well as
offering a deposit choice.
Currently, excluding the funds held with Lloyds Bank investments are:
Bank/Product Rate £
Nationwide 95 Day Saver Issue 7 0.40% 104,000
Monmouthshire Corporate Direct 30-Day Issue 2 0.40% 50,000
Monmouthshire Corporate Direct Instant Issue 2 0.35% 5,000
Total existing investments £159,000
These are old products to which new funds cannot be deposited but offer
reasonably competitive returns relative to current rates and so should be
maintained, at least until the current rates are withdrawn.
As Portishead Town Council is not covered by the FSCS a portfolio approach will
lower risk and so it is recommended that balances with any individual institution
should ideally not exceed c£100,000 (the Investment Policy has a cap of
£200,000).
2Reflecting the above, a proposed investment of current cash balances, subject to
confirming the institutions can accept PTC deposits and are of a high investment
grade is:
Investment Rate Amount £ Interest
p.a. £
Instant Access:
Lloyds current/deposit account – Instant (existing) 0.01% 60,000 6
CCLA Money Market Fund – Instant (new) 0.04% 60,000 24
Monmouthshire BS Corp Direct I2 – Instant (existing) 0.35% 5,000 18
Monmouthshire BS Business – Instant (new) 0.25% 55,000 138
30/90 Day Notice:
Monmouthshire BS Corp Direct I2 – 30 Day (existing) 0.40% 50,000 200
Investec - 32 Day Notice (new) 0.55% 50,000 275
Redwood Bank – 35 Day Notice (new) 0.70% 50,000 350
Nationwide BS – 95 Day Notice (existing) 0.40% 104,000 416
6 Month term deposit:
Aldermore/Clydesdale (new) 0.50% 150,000 750
12 Month term deposit:
Hampshire Trust/Shawbrook/ United Trust 0.70% 150,000 1,050
Totals £734,000 3,226
The inclusion of a Money Market Fund is recommended, to provide investment
flexibility, as although current money market rates are low, they are higher than
current account rates and rates change daily. The minimum MMF balance is
£25,000 and it may only be used when quoted market rates are favourable.
The use of multiple institutions is to spread risk and the use of 6- and 12-month
deposits is to lock in fixed rates, for cash that is unlikely to be needed as is broadly
equal to the minimum level of general reserves (£300,000).
An alternative to directly investing with each bank, is to use a cash solutions
platform, which offers a range of deposits through a single portal. This does not
reduce investment risk (as funds are not pooled) but does simplify administration
and offers a wider choice of investment than we (PTC) can practically research
and so potentially better rates. However, there is a cost or fee for such
convenience of around 0.25% of funds invested (c£1,800 p.a.). Whilst
investigating the above deposit options, it is also recommended that a proposal is
sought from Insignis to compare with direct investment.
4. Investment Policy
The current Investment Policy has been reviewed and is considered satisfactory
and compliant with LGA guidance. Accordingly, significant change is not required.
However, if Money Market Fund investments are to be made it is recommended
that the following changes are made:
Clause 3.1.5 the reference to investment scheme should specifically include
Money Market Funds, the clause amended to read ‘All investments will be made
with a body or investment scheme (including a Money Market Fund) which has
3been awarded a high credit rating by a * credit rating agency. (A high credit rating
will be defined as ‘A’ ‘High Credit Quality’).
Clause 3.3 deposits should not be limited to UK High Street banks/building
societies nor the funds surplus only for 3 months and so this clause should be
widened to cover all surplus cash deposits with UK banks and/or building
societies and/or Money Market Funds.
5. Proposal/Recommendation
Based on the above analysis the following is recommended:
a. The investments proposed in the report should be investigated with the
institutions concerned to ensure they can accept PTC funds and meet the
High Credit Quality condition. Including the opening of a Money Market Fund.
b. A proposal for use of a cash solutions platform should be sought for a similar
investment portfolio.
c. The results of a. and b. will be considered by an Investment Working Party
(members to be agreed) to approve the final investment decision and use of a
cash solutions platform.
d. The Clauses 3.1.5 and 3.3 of the Investment Policy are amended to read:
Clause 3.1.5 All investments will be made with a body or investment scheme
(including a Money Market Fund) which has been awarded a high credit rating
by a * credit rating agency. (A high credit rating will be defined as ‘A’ ‘High
Credit Quality’).
Clause 3.3 For prudent management of its balances, the Town Council, in
order to maintain sufficient levels of security and liquidity, will adopt a policy
whereby surplus funds can be invested in short term deposit with one or more
UK banks and/or building societies and/or Money Market Funds.
4Deposit Investment Rates @ 19.1.21
Interest rates: Existing deposits
Bank Instant 30 day 60 day 90 day 120 day 180 day 270 day 1 Year
Lloyds Bank - Local Authority 0.01% 0.05% 0.10% 0.11%
Monmouth Building Society - Business SA 0.25% 0.40% 0.50%
Nationwide Building Society - Business SA 0.05% 0.20% 0.40% 0.30%
Santander - Corporate Savings 0.05% 0.15%
HSBC - Business 0.01% 0.01% 0.01%
Clydesdale (Virgin Money) - Business SA 0.01% 0.05% 0.10% 0.30% 0.40%
Clydesdale (Virgin Money) - Term Deposits 0.10% 0.45% 0.50%
Hampshire Trust Bank 0.20% 0.75%
Shawbrook Bank 0.40% 0.55% 0.59% 0.75%
United Trust Bank 0.70% 0.70%
Investec 0.55%
Aldermore 0.50% 0.52% 0.55%
Redwood Bank 0.70%
Platforms/Funds
Flagstone Platform - Indicative Net%, 0.25% fee, min £250k 0.20% 0.05% 0.25% 0.50%
CCLA Public Sector Deposit (MMF) - Indicative rate, min £25k 0.04%
Insignis Cash Solutions - Bespoke rates, 0.25% fee, min £50k
1You can also read
